During 2017, private equity inflows into Indian real estate touched a new high since 2008, at INR 42,800 crores (USD 6.6 bn), registering a 17% increase from the previous year, as per global real estate consultancy Cushman & Wakefield. The investments into the real estate sector have risen a whopping 52% since 2014 aided by better ease of doing business, relaxation in FDI norms, introduction of GST, and defining norms for REITs listing.
The jump in inflows during 2017, comes on the back of a three-fold rise in investment in office segment, signaling heightened interest of institutional investors in pre-leased office assets. During the year, the market witnessed large deals with average transaction size rising almost 34% to INR 4,300 Crores. The deal book was dominated by foreign funds (accounting for 60% of investments), who chased big-ticket deals in residential, office and industrial assets.
The office sector witnessed a massive jump in investments to INR 13,200 Crores from INR 4,000 Crores in 2016, led by stake sale in office portfolio of a leading developer. Stability in the commercial office sector with strong momentum in leasing, stable returns on investments, as well as the potential to list income-yielding assets under REITs have steered multiple investors towards office assets. The year 2018 is also likely to see continued momentum and strong inflows into commercial office assets.
Institutional investors are foreseeing strong demand for office space by occupiers. Investors will continue to plough in funds into ready commercial office assets, which yield stable returns and can be listed under REITs. Like 2017, we expect foreign investors dominating investment volume in 2018, with office and industrial sectors in focus. With GST in place and the recently accorded ‘infrastructure status’ for logistics, the Industrial and Warehousing sector has become an attractive proposition for investors. The sector will give ample opportunities for developing modern and efficient warehouse management, catering to the rising demand for space driven by the e-commerce segment,” - Anshul Jain, Country Head & Managing Director, India
While the residential sector continued to get the largest share of investments during the year, the quantum of investment declined by 29% to INR 15,600 Crores. The momentum in investment volume has slowed as investors are adopting a cautious stance at a time when the residential market is subdued. Currently, developers are launching fewer new projects, as they straddle with an environment of high inventory, weak demand and are focused on ensuring new projects are in compliance with regulatory changes like Real Estate Regulatory Authority (RERA) and GST.
The Industrial segment witnessed the third-highest PERE inflows this year at INR 6,540 Crores. Granting of infrastructure status to this segment will enable access to cheaper finance, thereby aiding the development of warehousing facilities and logistics parks. Moreover with Goods and Services Tax (GST) implemented, the logistics sector is one of the biggest beneficiaries which will witness consolidation and development of warehouses. Large, modern, centralized warehouses are likely to become the norm in the sector. Hence, the sector is likely to see frenzied investor activity over the next few years, with fund raising already beginning.
Mumbai witnessed the highest investments during the year with almost INR 15,000 Crores worth funds being pumped into the market, a massive 41% increase over the previous year. Bengaluru surpassed Delhi-NCR for the first time since 2008, to attract the second-highest PERE investments.
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About Cushman & Wakefield
Cushman & Wakefield is a leading global real estate services firm with 45,000 employees in more than 70 countries helping occupiers and investors optimize the value of their real estate. Cushman & Wakefield is among the largest commercial real estate services firms with revenue of $6 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.